US Perspective—24.11.09
24/11/2009
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The market ended quietly after an early-week surge. Suppliers noted brisk business on Wednesday and Thursday. Some prices bounced back and forth through the week. Steer prices were up from $2-$3. Cows were not up as much, but went along for the ride, rising in a few selections—particularly dairy and northern branded cows.
The week ended with HNS as high as $63; BBS at $62; and CBS at $58. Although HTS were $60 on Friday, they were reported at $63 for medium weights earlier in the week. HNS’s price peaked at $64 on Wednesday the November 18.
This week’s slaughter is estimated to be 631,000, down 5,000 from the same period last year. Kills last week were 45.3% steers; 31.6% heifers; 21.3% cows; and 1.9% bulls. Last week’s kills were adjusted upward by 10,000 to 635,025.
The most recent USDA Export Sales report for week ending November 12 sheds a little light on the recent strength we are seeing in the US hide market. For the week, both combined whole hides and wet blue sales and shipments exceed 700,000, with sales at 761,400 and shipments of 735,000—numbers that sales have not seen in 23 weeks, and shipments for 16 weeks. For comparison, supply kills for the week were 625,000—136,000 under sales and 110,000 below shipments.
For the week, the difference between gross and net whole hide sales was not significant, amounting to less than 2%, slightly less than 12,500. For a change, wet blue had the notable adjustments with net sales 65,030 pieces less than gross. The difference was primarily in split grain sales to China with a negative adjustment of 55,695 pieces.
Most people in the market were cognizant of these large USDA numbers; however, the majority of reported prices were steady. One exception was CBS in both weights moving ahead significantly. CBS are still behind BS indicating there is probably room for prices to climb a bit further in order to close the gap to what is largely considered a similar product. Another new high was NHNDS reported at $62.
The market will find a stopping point. It’s a matter of when and if it will over-extend and see a correction. After all, the best cure for high prices is high prices.
There is a strong case, however, that the market will remain on strong footing through the holidays up to the New Year—and possibly the Chinese New Year. On the supply side, kills should remain low during this time. With packers in relative good inventory and sales positions, they will not be anxious to take lower prices. Tanners meanwhile are looking to make sure they have coverage for the high season for fall shoe sales. The biggest production in March and April will require hide deliveries for January and February and will keep pressure on the market until January.
The market continues to go up each week—to everyone’s amazement—and where it levels off is anyone’s guess. Pundits have been predicting that prices will level “soon” for several weeks now and although we hear the expression, “the market is tired,” sellers continue to try and squeeze yet one more week of price increases. Whether they will be effective or not depends on buyers and at what point they anticipate they can no longer recover hide prices in leather sales. Tanners are noting they cannot recover these high hide prices, but week after week enough buy hides and move the market up.
With this dichotomy in mind, the market is staged for an interesting week with offers just beginning to go out. As expected, sellers are asking up money and we will soon see if this is the week when buyers will hold the lid on prices. Some early reports today seem to be tipping the scale on the side of the packer.
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